CONCESSION BARGAINING
Robert B. McKersie
and
Peter Cappelli
WP 1322-82
June 1982
Concession Bargaining
How to Distinguish the Species Called Concession Bargaining
We are in a period of very intense and widespread economic change.
Concession bargaining is a development that has come to the fore as the
Certainly, the modern industrial
pace of economic change has accelerated.
era has witnessed change on a continuing basis, what Schumpeter has called
the "creative destruction" of capital.
In other words, there is a
continuous process of disinvestment and reinvestment of capital.
For a variety of reasons, the current period has taken on the
character of a convulsion rather than steady change that can be "taken in
stride."
Another term which characterizes the change and one that is a
favorite of economists, is discontinuity; an abrupt change from one rate of
capital redeployment to a different rate of redeployment.
The current situation can be understood more clearly if we consider
the role that expectations play in the changes.
itself, contains inherent risks.
Employment, like life
Workers estimate their chances of keeping
a job based on experience in the industry and their sense of the labor
market as to what is happening comparable situations.
While these
expectations change over time, they are reasonably stable and provide the
backdrop against which decisions about wages and other matters are taken.
For example, labor leaders and union members as they press for better
contracts are aware that over the long run the firm may respond by
mechanizing and finding other ways to use less of the higher priced labor.
Also, if a company announces that it is shutting down a facility, the
response of the workers to this prospect will depend upon what they see as
their alternatives for finding other work.
-1-
III
When a discontinuity or shock of severe proportions hit, then "all
bets are off," and expectations previously formed no longer accurately
represent the situation and must be reshaped, a type of agonizing
repraisal.
This appears to be the situation in many industries today.
Factors Precipitating the Convulsion or the Onset of Extensive Restructuring
Since concession bargaining is just one adaptive mechanism to these
convulsions it is useful to enumerate some of the forces and factors that
have given rise to the extensive amount of economic change that is taking
place across the world.
One view is that we have reached the end of a long wave, a period of
innovation and growth that has characterized many industries since World
War II.
Students of the Kontrief Cycle point out that such turning points
are inevitable given the way in which innovation occurs, capital is
accumulated, markets expand, and then there is a shift of economic activity
to the "new shoots".
Whether or not we subscribe to this mechanistic view of economic
development, it is clear that there are fundamental changes occurring in
many industries across the world.
The transformations in production and
employment are triggered by a variety of developments.
In some cases, the
trigger comes from new products, for example - radial tires; in some cases,
from new manufacturing processes - like robots.
In other cases, the
fundamental change is organizational, for example, the rise of mini-mills
in steel and new methods of killing and processing meat in the meatpacking
industry.
Certainly, the move to deregulate several industries such as
airlines and over the road trucking in the States must be seen as a basic
organizational change that has set significant forces for economic change
in motion.
-2-
Superimposed on top of these technical and organizational changes is
the development of world markets and world trade.
In effect, we see a type
of rationalization of industrialized economies that represent a type of a
world division of labor.
We cannot understand the pressures in the
automobile, steel, and tire industries without reference to the development
of world-wide markets.
For other industries, there has been a drop in the world-wide demand
for their products.
steel industry.
This certainly characterizes shipbuilding and the
Whether these changes are temporary (cyclical) or more
permanent (secular), it is too early to tell.
Finally, the world-wide recession (bordering on what some people
would call a depression) is also an important force in the overall
picture.
We are therefore witnessing a conjugation of developments and
forces that together provide the biggest shock to expectations concerning
employment security since the 1930s.
Alternate Strategies for Dealing with Economic Dislocation
At this point, it may be helpful to use a chart to illustrate the
various mechanisms that are used in different countries for dealing with
the prospect of economic dislocation: for the private and public sectors,
for the stages of preventing job loss, staging the job loss or cushioning
the job loss.
The advantage of using this chart is that it puts concession
and productivity bargaining in the a context of other strategies.
One of the major points to be explained is why there is so much more
concession bargaining taking place in the United States while the response
to economic change in other countries has been in the other cells of the
diagram.
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A few general comments about the patterns may help our understanding
of concession bargaining in the United States.
Early on in the adjustment
cycle, as the forces for economic change start to gather, there is not very
much concession bargaining in any country.
In the United States, this
period was characterized by plant shutdowns, in Germany and Japan the
approach was industry restructuring and efforts to redeploy the affected
In Britain and
workers in a variety of human resource planning techniques.
to some extent in Canada, there was outright opposition to plant shutdowns,
and in Britain especially, efforts to prevent the job loss by a variety of
government support programs.
As the crisis deepens and the reach of economic change goes deeper
and wider into the fabric of the economy, the question then is: how do the
parties respond?
There are no easy generalizations.
It is clear at this
stage that there is considerable resistance to additional plant shutdowns.
They cannot be justified on the basis of excess capacity.
the core of the economy is under threat in some cases.
It is clear that
In some countries,
unions and workers may respond to such situations in political terms.
They
demand that the industry not be dismantled and solidarity prevents any
consideration of concessions that would weaken the established wage and
benefit scale.
How a union and its members respond is a function of the
ideology of the union (class solidarity vs. business pragmatism) and the
extent of bargaining power inherent in the situation.
Unions in the United
States do not enjoy as much bargaining power even in the industries where
they have been traditionally strong in terms of the percent of the work
force organized.
In the rubber industry, for example, approximately 20% of
tire production is now done in non-union plants, and in the steel industry
the development of the mini-mills is making the steel workers'
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~~"
~
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~---·.-_
......
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III
position vulnerable.
The automobile industry is of particular interest
because the UAW still enjoys a very strong position.
Here, the choice for
the union is between advocating a very strong protectionist position vs.
engaging in concession bargaining in an effort to beat the competition in
the marketplace.
It is remarkable in terms of international comparisons of
labor movement philosophy and outlook that the UAW has not done more than
urge Congress to pass special legislation and to visit Japan to secure
voluntary export agreements.
Of course, the UAW is aware that the
political climate in the United States, at least presently, has not been
conducive to legislation that would protect industries like automobiles
that are under the brunt of increasing imports.
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CONCESSION BARGAINING IN THE TIRE AND AIRLINE INDUSTRIES
Now, let us take a closer look at the process of concession
bargaining.
From the union's point of view, one might think of it as
bargaining to save jobs; management is saying that they need lower labor
costs in order to maintain employment, and they are asking the union either
to do something about it or face unemployment.
The key question for the
union is whether management is accurately presenting their true situation.
It may be helpful to look in detail at the experience of two
industries, tire manufacturing and air transport, which in many ways span
The tire industry
the range of experience with concession bargaining.
represents old-line manufacturing, while air transport represents a
relatively new, service industry.
Both have experienced shocks that have
led their firms to threaten the security of current employment levels.
The Tire Industry
The story in tire manufacture is one of excess capacity in multiplant
operations.
Plants and local unions compete against each other to say
open, and they do that through concession bargaining.
The crisis was
brought about by two developments which paralleled those in auto.
there was a fall in the demand for domestic tires.
OPEC price increases by driving less.
lighter, fuel efficient cars.
replacements.
First,
Consumers responded to
When they bought cars, they bought
Both developments cut down on tire wear and
More importantly, the cars they bought tended to be imports,
equiped with imported tires.
Fewer original equipment tires were needed.
The second change which began about 1970 was a shift in demand away from
bias to radial tires.
Radials have superior handling characteristics, and
cars equipped with them get better gas mileage.
In addition, most of the
imported cars came equiped with radials; owners were likely to replace them
with radials, too.
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III
The industry responded to these developments beginning with the shift
to radials.
American manufacturers needed new equipment to manufacture
radial tires, and they were faced with a choice of converting existing
plants or constructing new ones.
Certain areas in the U.S. were offering
tax incentives for new plant construction (mainly in the South).
This
seemed to tilt the balance for tire manufacturers, and they constructed new
radial plants almost entirely in the South (chart).
Meanwhile, the North
was left with the existing bias plants which continued to operate.
The
shift in demand toward radials continued; they increased from 2% of the
tire market in 1970 to 55% in 1980.
One result of this shift away from
bias tires was the creation of substantial excess capacity in the Northern
plants.
These changes were accentuated by the OPEC price increases,
particularly those in 1979.
The subsequent decline in driving, the
recession that followed the price increases, and the "radial effect" (the
fact that radials need replacing about one-third as often and were coming
to constitute the bulk of the market) produced a general decline in the
demand for tires.
The decline in the demand for bias tires was
precipitous, and the resulting excess capacity in bias plants meant that
some would have to close.
Which plants should close?
high-cost plants.
An obvious answer was to close the
At a plant level, local management and local unions had
an incentive to lower costs in order to keep their plants from closing.
There is some indication that higher-level management left the plants free
to compete with each other to stay open.
concessions at the plant level.
They competed by securing
It is an indication of the excess capacity
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CONSUMPTION OF AUTOMOTIVE TIRES
IN THE UNITED STATES
(million units)
PRODUCTION
YEAR
TIRE IMPORTS
1973
223
15
13
1976
190
16
14
1977
237
17
15
1978
230
17
17
1979
215
20
16
1980
168
18
16
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TIRES ON IMPORTED CARS
-
-----
----
NEW TIRE PLANTS
Firestone, Decatur, IL
26.3 thousand tires/day.
Goodyear, Union City, TN
47.0
Goodrich, Miami, OK
11.0
Goodyear, Lawton, OK
22.0
General, Waco, TX
20.6
Goodyear, Gadsden, AL
52.5
nonunion
Firestone, Wilson, NC
20.0
nonunion
Uniroyal, Admore, OK
36.0
nonunion
235.8
Industry capacity between 1960 and 1980
approximately 600-800 thousand tires/day.
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CONCESSIONS - TIRE INDUSTRY
YEAR
STATUS AFTER CONCESSION
LOCATION
1978
10/3/77
1/11/78
1/24/78
3/29/78
5/18/78
11/14/78
11/16/78
?/?/78
Firestone, Akron
Goodyear, Akron (Plant 1)
Goodyear, Gadsten, AL
Goodrich, Akron
Seiberling, Barberton, OH
Mohawk, Akron
Mansfield, Mansfield, OH
Uniroyal
CLOSED
CLOSED
Open
CLOSED
CLOSED
CLOSED
CLOSED
Sold
General, Akron
Goodyear, Akron (Plant 2)
Mohawk, West Helena, AR
CLOSED
CLOSED
CLOSED
Goodyear, Los Angeles
Uniroyal, Detroit
General, Peru, IND
Uniroyal, Chicopee Falls
Firestone, Middlesville, IN
CLOSED
CLOSED
Open
CLOSED
CLOSED
Cooper, Texarkana
General, Akron
Mercer, Newark
Firestone, Memphis
Goodyear, Topeka
Firestone, Akron
Open
CLOSING 1982
CLOSED
Open
Open
CLOSED
1979
4/16/79
5/?/79
6/11/79
1980
2/4/80
2/10/80
6/27/80
7/7/90
10/30/80
1981
2/22/81
3/27/81
4/2/81
5/19/81
7/16/81
8/13/81
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`-`-"I~----~"---"--I-----
III
that virtually all of these plants closed eventually (chart).
The plants
that closed were all bias plants, and they were almost all in the North.
There are no more tires being made in Akron, once the center of the
industry.
The Air Transport Industry
This is a very different case -- price competition following
degregulation forced revenue in some carriers below costs and brought them
near bankruptcy.
Before 1978, Government regulations restricted entry and
made.it difficult to compete on prices and routes.
After deregulation in
1978, new carriers were free to enter the market; the number rose from 38
to 80 between 1978 and 1981.
Charter and intrastate carriers were able to
compete with the main airlines on trunk routes.
As a result, price
competition increased substantially, especially on the well-travelled
routes.
The new carriers (and the charter and intrastate carriers) had
substantially lower labor costs.
scales.
Most were nonunion, with lower salary
All had younger crews with lower seniority pay.
work out of their crews through tougher workrules.
And they got more
Southwest Airlines, for
example, even though it is unionized, gets 50% more flight time from its
crews than do many of the main carriers.
Their labor costs are less than
half; labor costs at smaller, regional carriers like Midway are two-thirds
less.
The older, established carriers still retained some cost advantages,
particularly on longer flights where their larger planes cut average costs.
The situation changed in 1979 when OPEC price increases doubled fuel
costs (then about 30% of total costs).
Because the demand for air
transport is very sensitive to the business cycle, the recession that
followed the OPEC increases led to a substantial fall in demand.
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The
situation got so bad in 1980-1981 that the demand for air travel declined
absolutely for the first time since WWII.
With all of this competition in the industry and with the absolute
demand for transport declining,the market produced tremendous excess
capacity (one estimate put the excess capacity on the North Atlantic route
equal to 50 jumbo jets per day).
The excess capacity led to price cutting
on many runs and price levels often below costs.
1981 was the worst
financial year in aviation history; fourth-quarter losses for the industry
were $294.9 million.
1980 was the next-worst year, and 1982 is expected to
be about as bad.
(chart) Many of the carriers had loaded-up on debt just before this
period, and the recent rise in interest rates particularly hurt those with
short-term debt.
The following airlines are in the worst position:
Republic and Pan Am took on substantial short-term debt to finance mergers;
Braniff also took on short-term debt to finance expansion; Western and
Continental borrowed to fund new equipment.
These airlines are all in
danger of being unable to fund their current debts and of being reorganized
or simply going under.
Concessions in the airline industry will not make up the cost
Prices are not
advantage that the new carriers have on shorter flights.
closely related to average costs on individual routes.
So concessions do
not help a carrier compete on the market; they are designed to free
resources to service debts and meet capital requirements.
This is clearly
a different situation than in the tire industry.
The pattern of concessions is straightforward.
They have occurred
this year because conditions now are the worst in history.
Some carriers
are doing rather well, some are near the brink, and most are somewhere in
the middle.
Although most are trying for concessions, those
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_
· _sl
^1^1___
I'I
AIRLINE CONCESSIONS
PROFITS
CARRIER
CONCESSION
-$ 31.4 mil
Brainiff
10% pay cut and variale earnings plan
through 1983. Contractual wage
increases continue
-$360.
mil
Pan Am
10% pay cut through 1982; contractual
increases suspended; work rule changes
-$ 66.
mil
Western
10% pay cut for six months, now in jeopardy
as Teamsters have rejected it -- other
groups may follow; pilots may agree to
reduce labor costs to '82 level through
productivity
-$ 24.5 mil
Republic
10% pay cut for clerical staff; one mo.t:1
pay deferral for pilots -- repaid by
August; 10% pay cut for flight attendants
may be extended to '82 -- currently in court
-$ 43.5 mil
Continental
10% pay cut from pilots
-$ 49.9 mil
Eastern
Variable earnings plan -- employees
contribute to offset losses up to a certain
percentage
-$148.
mil United
+$ 86.5 mil
Delta
+$ 72.2 mil American
Productivity concessions from pilots;
two-man crews on 727s
No concessions
No concessions
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able to secure them are carriers who are worst-off, who are actually in
financial danger.
As with any other negotiation, concession bargaining can take place
both at local and national levels.
Bargaining at local levels requires
that the firm have autonomous units -- the case in multiplant industries
such as rubber, not the case in air transport.
Although one hears more
about negotiations at the national level, there is much more concession
bargaining at the local level.
It is natural to wonder why there are so many concessions now and why
they are happening where they are.
The short answer is not simply because
of the recession but because of the structural change in the economy.
The
industries undergoing concession bargaining have experienced several years
of severe structural change.
Many industries have suffered excess capacity
because of a permanent fall in demand (as in tires and auto).
Some have
seen the entry of large numbers of low-cost competitors because of
deregulation (trucking and airlines).
foreign competition (steel and autos).
Others are damaged by low-cost
These problems have led to a fall
in the demand for the industry's product and a subsequent fall in the
demand for labor; current levels of employment cannot be maintained at
current cost levels because of the shift in demand.
These problems have
been building in many cases throughout the 1970s; the recession simply made
them worse.
What does management ask for in concession bargaining?
They want to
reduce labor costs, but there may be many ways to do that, not all of them
equally easy.
Certain items are more visible from the union's point of
view and may also require more levels of approval.
Management usually asks
for work rules, scheduling changes, grading adjustments, wage and fringe
freezes, and wage and fringe cuts -- in that order.
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The first items are
less visible and can usually be negotiated locally.
The latter ones are
more difficult to secure but cut costs faster.
In general, will the unions agree to concessions?
The different
levels within a union-may have different interests in concessions.
The
Local should be particularly concerned with employment consequences when
concessions bargaining takes place at the plant.
The International may be
more concerned with the effect of concessions there on the pattern, oil them
spreading to other plants, and less concerned with the employment risk.
Whether the union agrees to the concessions may, therefore, depend on which
level makes the decision.
And that differs with the issue -- workrules,
for example, are usually left to the local level.
It also differs with the
union -- some may allow more autonomy at the local level.
The key question for the union is whether management is serious in
its threats.
The Local and the International may have different
information and perceptions regarding the truth of management's arguments.
It may be the case that the International actually has to convince the
Locals to take Management's claims seriously.
Alternative employment prospects also influence decisions.
There may
be cases where skilled workers are willing to see a shop close rather than
make any concessions because they are reasonably certain of finding jobs
with equal compensation elsewhere.
In the tire industry, there have been cases where the Locals have not
granted concessions.
granted them.
In this recent period, they appear to have always
The reason would seem to be that the union believes
management to be serious in its threats, a conclusion re-enforced by recent
experience, and that alternative employment prospects in the industry and
in the region are dismal.
clear.
American,
In airlines, for example, the picture is no so
or example, could not get concessions from aIyone because
-16-
it did not appear to be in bad enought straights.
On the other hand, even
the Machinist's Union, which has a policy of opposing all concessions in
principle, made an exception for Braniff because it was so obviously in
trouble.
One finds similar variance in other industries.
Chrysler got
concessions first, perhaps because they were in the worst shape; General
Motors got them last (and apparently got least) because they appeared to be
in the best financial position.
Yet even at Chrysler, workers in the more
successful plants were reluctant to go along with the concessions because
they felt that their plants would continue to operate, perhaps under a
different owner.
Are the unions getting anything in return for the concessions?
Sometimes they are, and this may be what is new about concession
bargaining.
But concessions are designed to cut labor costs, and it would
be irrational for management to give back items that increase labor costs,
such as work rules or wage and fringe improvements.
traditional union goals.
Yet these are the
The real challenge here is for unions to look for
improvements in other areas, such as union security arrangements, job
security, future wage and benefit improvements, some say in management
decisions, etc.
In short, move into areas traditional considered
management preogative.
How much management is willing to give for the concessions obviously
depends on how badly they want them.
If they are simply rearranging
production between plants, and the unemployment threat comes from that,
management may not care that much about concessions.
If the company is
threatening to go out of business, however, they may want them quite
badly.
In the rubber industry, it was clear that many plants had to close,
and there was little reason to believe that the companies cared which ones
were shut down.
In these local concessions, the union received virtually
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1__1__1_11______
__ __
nothing in return.
But in national bargaining with Uniroyal, where the
company was threatening to go out of business, the union secured a number
of improvements, including the right to audit company books in return for
wage concessions.
In the air transport industry, the unions won a number of
improvements in return for concessions, largely because the companies were
actually threatening to close and desperately needed the concessions.
Pilots at Western and United won no layoff clauses; workers at Pan Am and
Western gained profit sharing; Republic employees took a stock swap as a
concession.
Where concession bargaining takes place, one might expect Lt to
First, labor costs and employmeL
permanently alter industrial relations.
security will be more closely linked.
Second, negotiations will
increasingly include plant and firm characteristics, contributing to the
break-up of contract patterns within and between industries.
Finally,
bargaining may extend into areas of traditional management perogative as
the price for union concessions.
Evaluation of Concession Bargaining
Since the dust has not settled on this period of intense activity, it
is not possible to discern what the net effect of these bargains will be.
There is the cynical view that the whole business is a plot by management
to gain the upper hand and to drive down the social wage.
The other view,
and the one to which we are more prone to suscribe, is that we are
witnessing a period of inevitable economic adjustment.
automobile industry in the United States.
Consider the
Rather than sticking strictly
with a protectionist position, the union has been willing to join the issue
and to put operations in the United States on a more competitive basis.
-18-
A
very valuable lesson about maintaining economic viability on a world-wide
basis has been driven home to many automobile workers.
If the result (and
this is a big IF) is to stem the tide of foreign imports and to not only
protect existing jobs but to regain some lost employment, then this will
promote a very strong reinforcement within the thinking of the U.S. labor
movement.
At a minimum, the willingness to mark time on cost of living and
to give up the annual improvement factor and other gains means that the
labor cost picture will be more favorable in the United States for Japanese
manufacturers who might be contemplating making rather than shipping
In other words, from the union's point
automobiles into the United States.
of view, there is the need to keep wage scales at a point where foreign
companies are motivated to contemplate the possibility of producing their
products in the United States.
Of course, the union faces the challenge of
organizing these workers, but the UAW is one union that has a good record
of organizing new facilities that are brought on line in their industry.
Returning to the main theme of positive adjustment, from a public
policy point of view, it certainly is preferable for workers to make
adjustments that reduce labor costs rather than holding firm and forcing
companies to shutdown additional plants.
From the viewpoint of future
generations, a plant shutdown is a continuing loss.
Workers who are
willing to work longer hours and to work for less are making a contribution
to the job viability of a community for the future.
The important conceptual distinction is between viewing concession
bargaining as an element of distributive bargaining, that is, whatever the
workers give up is a direct gain to management (in this case, increased
profits) versus some form of integrated or mixed bargaining, where both
sides gain more than they give up.
This latter case, of course, depends
-19-
_
III
upon the elasticity of employment.
If the concessions are sufficient to
increase the volume of activity and to pull back into the economy work that
has been exported to other countries, then the concession bargaining is
indeed a case where both sides gain.
Of course, there are situations where concessions have no possibility
of increasing revenue, in the public sector for example.
It is not
surprising that in the face of financial cutbacks, unions in the public
sector are not engaging in concession bargaining and are forcing management
to lay workers off and to bargain through the changes on a distributive
basis.
The situations where there is the greatest chance of mutual gain are
those where there is competition from the non-union sector or from abroad.
Thus, tires, trucking, airlines, meatpacking, and autos all contain the
possibility that concession bargaining may help the employment prospects in
the unionized sector.
Yet, even in these industries there are a number of examples where
concession bargaining has taken place and it has not brought about the
desired improvement in job security.
This is because either the plant in
question was so antiquated that it eventually needed to close and the
concession bargaining was just buying time, or because a long-run situation
overcapacity existed in the industry where some plants needed to be
closed.
The concessions did not move the particular plant in question far
enough up the league tables to prevent a shutdown.
Bridgeport Brass, for
example, closed a plant in the fall of 1980 three years after the union
involved agreed to a cut in wages and benefits of almost $1.30 an hour.
Is There Anything New This Time Around With Concession Bargaining?
A number of analysts, such as John Dunlop, maintain that what we are
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witnessing today is just a re-running of an old movie.
I think these
commentators are right with respect to the side of the bargain that the
company gains, namely wage reductions, work rule changes, increased time on
the job.
However, it is on the other side of the bargain, what workers
gain, where there is some new ground, what might be called the latest
frontier or what unions mean by "more".
Let me enumerate these dimensions
and make a few comments about what we see as interesting trends.
1.
A look at the books.
In a number of agreements management has
said that it will show the union important financial data.
For
example, in the settlement last year between Armour and the Food
and Commerical Workers Union, the company agreed to provide a
five-year plan of capital expenditures and each January to
provide a summary, plant-by-plant, of investment activities.
In
the Ford settlement, there will be meetings in which the company
shares information about investment plans as they affect
employment on a world-wide basis.
In the case of one of the
large airlines, information will be provided so that the Pilots
Union can be sure that the productivity improvements that have
been realized as a result of their concessions do not result in
the layoffs of any pilots.
(The company gave the guarantee that
pilots not needed as a result of productivity improvements would
be kept on board until attrition took effect.)
2.
Union Security.
In a number of agreements, unions have obtained
important institutional gains.
For example, Armour agreed to
recognize the union in any new plant based on a check of
authorization cards rather than forcing the issue to a
representation election.
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I____IIIYV______.
In trucking, there are some
limitations on the establishment of non-union subsidiaries - in
other words, a deterrent to further development of the
double-breasted trucker.
3.
Job-investment bargaining.
One of the most interesting
developments has been the coupling of employment security with
investment behavior on the part of the corporation.
In a number
of significant situations, such as in the paper industry, at
General Electric's Erie operations, Goodyear in Topeka, Timken
for its Canton plant, a commitment has been made convening
investment dollars as part of the concession deal.
Perhaps the word bargaining is too strong a term to describe the
deal because the unions are not writing into the contract any
information about a company's decision to modernize its
facilities.
Rather, it is a linkage, a type of coordination
across the employment and investment themes.
It is somewhat
analogous to what happens when a community goes all-out to
attract a new facility of a company.
The community makes tax
concessions or provides some other inducements -- with the
promise by the company to put new jobs in the locality.
Nothing
is legally binding but it is understood that the coordination
will take place because it is in the interest of both sides to
go through with the understanding.
Similarly, we see a
development of this sort in the context of concession bargaining.
Whether U.S. unions will push it to the next step of filing
complaints through arbitration or through the courts if they
feel a company has renigged on its side of the bargain remains
to be seen.
But in any event, we appear to be moving into a new
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era where unions are much more interested and sensitive about
the investment decisions that companies are making.
4.
Enhanced job security.
Given the prominence of this subject in
negotiations in the U.S automobile industry, this is clearly one
of the significant dimensions of concession bargaining.
It is
rather complicated and a number of points need to be made.
First, even if job security is not made explicit, it certainly
is involved implicitly in any concession bargaining because the
presumption is that by lowering labor costs, then more business
will be attracted and jobs will be made more secure.
A number of important assurances have been given by companies
with respect to job security.
In terms of the diagram used
earlier, a number of them have been willing to move to the
staging category rather than continuing the abrupt process of
shutdowns on short notice.
Thus, several companies have said
they will not shut any additional plants down for one or two
years and if they do they will give at least six months advance
notice.
Ford has gone further and has said that if there are
excess workers it will endeavor to handle the problem through
attrition.
The other dimension of job security is a guarantee against
layoffs.
Ford will experiment with this for two plants where
80% of the workers will be kept on regardless of production
levels.
Similarly, United Airlines has agreed to not lay off
any of its pilots (in exchange for major changes in
availablility of pilot time).
These assurances go a long way in
the direction of what has come to be known as the Japanese
method of career employment
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I
III
-- also, practiced by a number of high tech firms suchl as IBM
and Hewlitt Packard.
There are several questions concerning this trend.
How far can
a company go in guaranteeing no layoffs when it is not in
control of its market position or the demand for its product?
Ford can achieve no-layoff for several plants but it may be at
the expense of moving work into those plants from other places,
thereby having a secondary effect on job security of other
workers.
While a company can use human resource techniques to
even-out the ups and downs and to avoid layoffs that are part of
the cyclical activity of the industry, it cannot go so far as to
avoid layoffs if the demand is not there for the product.
The second major question has to do with the preference of the
workers who are in the industries we have just cited.
What
preference do they put on stability of employment as contrasted
from earlier patterns of work interrupted by periods of
idleness?
It is not clear that such a pattern of
work-alternated-by-leisure leads to lowered productivity by
itself.
What does lead to such behavior is fear of permanent
job loss, and as we were saying above, assurances against that
are things that most companies cannot give.
The in-between
category and where commitments about no layoffs do make sense is
where technology has changed and companies initiate discretinary
adjustments, such as major reorganizations.
This is where there
can be considerable resistance to change, and by using human
resource planning techniques, phasing in the changes, and not
laying workers off, there is a much greater likelihood that
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these changes will be introduced, accepted and incorporated more
readily, helping the competitive position of the company.
5.
New values.
It is clear that the designers of a number of the
concession agreements are attempting to set in place the new
values of openness, equality of sacrifice and egalitarianism.
Whether these values will "take" or are just the expressions of
the philosophy of the people at the top remains to be seen.
In
the work by Athos and Pascale it is estimated that to change the
values of an organization in a radically different direction
takes a minimum of ten years.
But in any event, some forces
have been set in motion that may move some companies and some
industries in the direction of what has been called in the
literature, Theory Z.
The Dilemma For Labor Leaders
The economic crisis and the possibility of concession bargaining pose
incredibly difficult dilemmas and decisions for union leaders.
They find
themselves in a type of no-win situation.
This maybe called the predicament of participation.
Helping shape
business decisions presents an acute problem for union leaders and worker
representatives.
They find themselves in a dilemma with sharply drawn
disadvantages on each side.
On the one hand, if they become involved, they
may be viewed by the rank and file as having been co-opted by management
and thereby suffer the stigma associated with business demise.
These fears
are well illustrated by the experience of some of the unions in British
Steel who have been blamed by rank and file members and community
representatives for having gone along with the decisions that have
dismantled a large part of the steel making capacity.
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111_____
Worker Directors,
who have been "associated" with the decisions have been treated as
strangers in their home territories.
On the other hand, if union leaders do not get involved to challenge
the business decision, they may also be condemned; an illustration comes
from the United States.
The United Automobile Workers represented
approximately 1,000 workers at a Dana Corporation plant in Wisconsin making
front-end axles.
In a survey conducted among the workers about a year
after the plant closed down, the workers expressed many more negative
feelings about the union than about management.
The workers viewed
management as having made an inevitable decision to close the plant down in
the face of a drop in demand that hit the vehicle industry.
However, the
workers felt that the union should have done more to force the company to
transfer other work into the plant or to have put pressure on the company
to close another plant.
Union representatives were seen as having failed
in their tasks, since it is their responsibility to make job security a
number one objective.
If job security is not pressed, then there can be a
substantial backlash against union leaders.
During the early stages of the adjustment cycle, labor leaders may be
able to "look the other way" in hopes that the problem will go away, or if
local rank and file people enter into adjustments on their own, then they
can ignore the impact at the national scale.
This is the approach that the
Teamsters had taken until recently.
When the crisis becomes severe enough that national leaders have to
move into the picture, they must guage how much of the crisis is cyclical
and how much is permanent (unless some changes are made in labor costs).
This is very much a judgement and puts them in the impossibly difficult
position of trying to estimate the future fortunes of a given company,
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industry, and economy.
In the short run there is no easy solution.
Over the long run, the
only way for union leaders to get out of the bind that such a defensive
position always poses for them is to take the initiative on a country-wide
or indeed on an international basis to organize the market and to take the
wage rate out of competition.
Thus, after this crisis is over, we can
expect to see much more activity across industrialized countries by the
international trade union confederations.
Our view is that they are biding
their time on the question of multi-national bargaining and that once
economies begin to pick up strength, unions will be moving to avoid a
repetition of the present situation by standardizing wage rates and
conditions as much as possible.
The Next Time Around
Of course, efforts to establish a labor standard may prevent
wholesale concession bargaining, but ultimately pressure will come from
some sector, if not from an underdeveloped economy then from a new industry
with a better idea and a lower cost product.
The interaction between
achieving wage gains and wage adjustments is dynamic.
In some respects,
concession bargaining has been more intense in those industries that have
enjoyed stability as a result of the union scale and collective
bargaining.
The workers have been immunized from concern about labor costs
because the seniority principle enabled most workers in the industry to
count on continuing employment.
Certainly, the recent pressure in
collective bargaining for cost of living clauses must be seen as having
been otherwise.
In unorganized industries where everyone is at risk, there
may be more interest in keeping the operation competitive.
By contrast, in industries that have not been as strongly organized, such
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III
as garments and textiles, concession bargaining has not been as necessary
precisely because the threat on a continuing basis of nonunion products has
kept wages and benefits in line with competitive conditions.
that wages have been kept on the low side.
It is true
But from a long-run view, it
would seem that accommodation has occurred on a more gradual basis -rather than a long period of stability followed by a crisis and a very
tough shake-out of the sort that is happening in a number of industries
today.
George Shultz uses the example of the dam and the buildup of water
to illustrate this change.
One can have a gradual runoff or one can hold
back the pressure for an extended period of time only to have a complete
breakdown and a flood where everyone "runs for cover".
Another fact of life is that where wages have been taken out of
competition, management also goes "asleep" and stops scanning the horizon
for information about what is going on elsewhere in the industry.
Both
sides become overly complacent.
The trick is to achieve a balance of stability and change -- neither
extreme is functional.
In collective bargaining we have the concept of the
living document, a term first used by the UAW in the early 1950s.
Both the
employment relationship and the competitive position of the business need
to subscribe to this dielectic of continuity and change.
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